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Tuesday, August 28, 2012 – I Won’t Be Going to Jackson Hole

I Won’t Be Going to Jackson Hole
Sinclair Noe


DOW – 21 = 13,102
SPX – 1 = 1409
NAS + 3 = 3077
10 YR YLD -.02 = 1.63%
OIL + .57 = 97.48
GOLD + 3.00 = 1667.60
SILV +.18 = 31.00
PLAT – 23.00 = 1524.00

The ECB announced that Mario Draghi had canceled plans to attend the Kansas City Federal Reserve’s annual economic symposium in Jackson Hole, Wyoming citing “a heavy workload”. So, I would just like to announce that I’m not going to be able to attend either. Further, I can tell you that none of that makes much difference; the markets are waiting on a Federal Reserve announcement and an ECB announcement. Relax, it’ll happen. Draghi faces a tougher row to hoe. ECB staff are still weighing a variety of approaches. Draghi, meanwhile, remains in conflict with Germany’s Bundesbank, which has reiterated its opposition to bond purchases of any kind.

Meanwhile Fitch has downgraded ratings on 7 mid-sized Italian banks, based on the “current challenges in the operating enviroment” and the difficult of accessing wholesale funding. At the same time, the ECB is in a standoff with Spain, which remains reluctant to seek help from the euro-zone’s rescue fund, an action that Draghi and other ECB officials have made clear is an absolute prerequisite for any new bond-buying efforts. Apparently the Spanish have figured out that the medicine is worse than the ailment and they don’t want to be economically indentured for the foreseeable future. I can understand that Draghi is busy these days.

Stock markets were flat. Volume was among the lightest of the year after Monday’s lightest trading in 2012. August is a slow season, and investors mostly stayed on the sidelines. Light volume can exacerbate moves in the markets but what we’re seeing now is a snooze fest.

I’ve seen a couple of news flashes today. One talking about Hurricane Isaac, the other flashing on the Republican Convention. Mitt Romney has been nominated by the GOP; not exactly a news flash. Hurricane Isaac is heading for New Orleans. But the best optic of the day may be the Tampa Bay Times Forum arena, the location the Republican Party chose to host a convention, the arena was built with taxpayer funds, which accounted for $86 million or 62%, of the total money needed to finance the construction of the stadium.



Oil rose as Isaac gathered strength on its way into the heart of the Gulf of Mexico’s oil and refinery operations. The price got a boost after midday when Isaac strengthened into a Category 1 hurricane with 75 mph windsNearly 94 percent of oil production in the Gulf, or 1.3 million barrels per day, has been halted. At least 1 million barrels per day of refining capacity is expected to be shut down, which is about half the refining capacity in the storm’s predicted path. The US consumes about 19 million barrels of oil products per day.

As Gulf Coast towns shudder and scramble, fearing the deluge of rain and wind that Hurricane Isaac is expected to dump, the drought-stricken Midwest couldn’t be more thrilled to welcome the storm system. The heartland of the United States has been hoping for rain since May; across the central plains, crops are withering and rivers are running completely dry, strangling local economies, but for those hoping for a respite from what’s been one of the most ruinous droughts in decades, Isaac may not be bringing salvation. The 1 to 3 inches of rain expected to fall on parched farmland later this week will provide a nice shot in the arm but most of the crops are already lost and the rain really won’t do much for lakes and streams. In fact, it might not even be enough to provide any relief at all. In Missouri, for example, this season’s rainfall is 15 to 20 inches below normal amounts, meaning even 3 inches of rain isn’t going to be enough to end to the drought or save summer corn and soybean crops.

The storm system may even do more harm than good in America’s agricultural breadbasket. Abnormally high winds could push over already brittle unharvested corn stalks, flatten rice plants and knock over the newly-seeded sugarcane crop. Also at risk are cotton harvests in Louisiana, where many plants are currently in the “open-boll stage” and vulnerable to rain and wind. The soil is so parched across the central part of the U.S. that a sudden downpour — Isaac’s predicted 1 to 3 inches is on par with a weak hurricane or intense tropical storm — could send the rain sliding off the hard soil, leading to flash flooding.
The news flash of the day is Isaac, and it turns out there’s an app for that, six apps at last count. Take your pick: Hurricane tracker, Hurricane HD, Hurricane Express. I haven’t seen an app for the earthquake swarms coming out of Imperial County but I’m thinking it’s just a matter of time.

Apple won its patent case over Samsung last Friday. Samsung was hit with a $1.05 billion verdict after a federal jury found that it had infringed Apple’s smartphone patents. In other words, Samsung ripped off the iPhone. Apple is now asking the judge to bar Samsung from selling 8 of its popular mobile devices in the United States. That’s a big deal.

Apple’s share price hit another record high this week. Samsung, dropped to a four-year low, wiping out some $12 billion in market valuation; which is about what Google paid to purchase Motorola Mobility, Samsung’s smaller rival. Despite Apple’s victory, this dispute is far from over. Samsung has said it will appeal, and then the case goes global and they square off in several other jurisdictions around the world.

Any billion-dollar jury award is significant, but this case is about much more than just money. The judgment represents 2% of Sansung’s global revenue; they can survive that. So, what’s this story about? It’s about market dominance in the global smartphone race. Apple’s victory is the most high-profile outcome thus far from Silicon Valley’s escalating intellectual property war. The biggest winners? Lawyers. Can you imagine the litigation fees on a $1 billion jury judgment?

Generally speaking, there are two schools of thought coming out of this verdict. This first is that Apple’s decisive victory means that its competitors — ie. Samsung, HTC, and Google-owned Motorola — will have to redouble their efforts at innovation now that a jury has told them to stop ripping off Apple’s designs. In other words, the decision will benefit consumers by fostering a diversity of designs and products in the smartphone market.

The second school of thought is that Apple is throwing its weight around and obsessively patenting hundreds, if not thousands, of not so technical features like a square with rounded edges, or the flick-of-a-finger on a touch-screen. If you can afford enough attorneys you can control the patents. In this view, high-priced intellectual property lawyers and tech firms with deep pockets actually stifle innovation; it allows one powerful company, Apple, to essentially have a monopoly on smartphone features. Like a square with rounded edges.
Intellectual property laws are in desperate need of reform. Inventors should be protected; that is understood, otherwise what’s the incentive to create anything? On the other hand, the current method of adjudicating patent disputes is badly broken.
When the big winners are the lawyers, the outlook for innovation is not good.


Michael Wolff at the Guardian had this worthwhile look at Apple:

During the closing arguments at the trial last week, Apple’s attorney showed the jury two smartphones, Nokia’s Lumia and a phone from Sony, and he said not every smartphone needs to look like an iphone. Just in case you were wondering what to buy instead of Apple, and ironically Nokia runs on a Windows platform.

Apple came close to destroying its business in the late 1980s by pursuing a suit against Microsoft claiming that Windows infringed the look and feel of the Mac desktop metaphor. Apple focused its hopes and business future on this lawsuit, while its market share dwindled. Rather than competing, it litigated. And lost.

The first justifiable conclusion might be that big companies get their way. The second might reasonably be that Apple doesn’t change much: its business model remains aggressive self-righteousness. The third is what everybody knows: patent rules and philosophy are all screwed up.
As for the first point, Apple is not just a big company, but the biggest. And it is not just the biggest American company, but the most American company. It has entered a rarefied brand status in which it is now almost synonymous with American virtue: American as Apple. Its good design sense has become a major point of American pride, if not nationalism. The brand is a national asset. Apple is AT&T in its pre-break-up from; it’s GM, in its what’s-good-for-General-Motors-is-good-for-the-country stage; it’s United Fruit when it made US foreign policy; it’s Microsoft when desktop computing was transforming the world.

This is about as close to commercial omnipotence as it gets. Its unassailability, its right to be aggressive, is built into its share price. There are special privileges for the really big and pwerful. So let us briefly consider the chance for a Korean company defending itself against (or, perish the thought, challenging) the greatest American company of the age in the eyes of an American jury.
And then, there’s the self-righteousness. Apple is one of the most aggressive intellectual property litigators of all time. Its major moves have not been about protecting precise technical innovations, but about claiming the much softer zone of look and feel. It sues for brand rather than engineering. It has pioneered a new modern sensibility: taste is what’s most valuable; identity is king. It’s sued about the lower case “i”; it’s sued about the word “pod”; it’s sued New York City over the “big Apple”; it’s sued over using the words “app store”.
This fierce defensiveness might be rightly understood in a psychological sense: Apple itself is based on stolen iconography. There was first the Beatle’s Apple and there was Xerox’s Palo Alto Research Center desktop design. Apple’s self-righteousness masks its guilt. What’s more, it knows better than anybody that if you relax your vigilance, somebody can easily walk off with what you’ve done – and improve it.
This is the story between the lines of its great victory and its further share price surge. On the one hand, there is this seemingly golden company. On the other hand, there is anybody with any sense of history knowing this is going to end badly.

Companies that acquire the nation’s imprimatur often, if not invariably, over-reach. It is a characteristic of American capitalism: the price of getting really big and overbearing is that you incur an inverse reaction. In the early 1990s, an ambitious department of justice (a Republican administration DOJ at that) commenced its assault on Microsoft. For better or worse, by the time the feds were finished, the company, with its rotten operating system, besieged and beleaguered, had become just one of many not-very-adept players in the space – an unimaginable outcome if you remember the once God-like power and scorched-earth wrath of Microsoft.
Apple, and its rotten phone, have a ways to go. But karma should not be underestimated as a factor in this game.

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